Retail, Office Construction Boom in California Nearing a Peak, Say Survey Respondents

by Katie Sloan

While California is experiencing a construction boom across all property sectors, the latest Allen Matkins/UCLA Anderson Forecast Survey of commercial real estate developers and investors provides the first indication of a “topping out” in the retail and office markets.

The survey — conducted each June and December via a combination of email, online and mailed surveys — is based on a three-year outlook for California’s commercial real estate industry. The survey covers the Los Angeles, East Bay, San Diego, San Francisco, Silicon Valley and Orange County markets. The same group of investors and developers is interviewed each time.

While the consensus forecast for California is that both jobs and income growth will continue to outperform the United States, absorption of new commercial real estate is both a supply and demand phenomenon, the UCLA Anderson research team points out.

The retail market developer sentiment survey — a subset of the overall Allen Matkins/UCLA Anderson Forecast Survey — indicates a falloff between December and June. “That sentiment is weakening is an indication that at least some of the panel is now taking a more pessimistic view of the retail markets going forward,” according to the authors of the report.

Part of the challenge associated with assessing the overall health of the retail sector is that it is undergoing a profound change from distribution conduits to experience-shopping venues.

“Though new construction of retail space to support the booming multifamily market and renovations of existing high-quality malls to change them from existing brick-and-mortar stores to experience venues appears to be driving retail, there are significant headwinds as consumers shift to online purchases,” write the authors of the survey.

Still, half of the respondents in Southern California and two-thirds of the panelists in the Bay Area stated that they were planning new retail construction in the coming 12 months, and half stated that they had begun at least one new project in the past 12 months.

“This planned construction suggests that although the retail space may be struggling in general, significant opportunities remain, at least in the construction of new retail space,” the researchers conclude.

Survey respondents touted the importance of creating experience-based destinations for retail, says John Tipton, real estate attorney at Los Angeles-based law firm Allen Matkins.  “It’s not just about doing your shopping, it’s about creating a place I want to be and spend time at.”

The accompanying video produced by Allen Matkins, found here, offers more insights into the survey results. The industry experts interviewed in the video include: John Tipton and Tony Natsis, partners at Allen Matkins; Jerry Nickelsburg, senior economist at UCLA Anderson and author of the forecast survey; plus executives from the nation’s top brokerage firms.

Katie Sloan

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